Need to know: Trading Desks

A trading desk is still a relatively new phenomenon but they are starting to become significant players in the digital trading ecosystem.

So what are they?Put simply, trading desks are the platforms that agency groups use to buy media. They then sell this space on to the brand name agencies for use by you, the advertiser.

Over the last 18 months, agency groups have been investing heavily in people and resources to be able to deliver the same solutions that advertising networks and exchanges have been selling for the last 12 years. What are the advantages?

A trading desk enables agencies to collect data on behalf of their clients and use that data for audience and behavioural segmentation, re-targeting of ads, and managing campaign performance. This data collection enables more targeted buying decisions to be made.

Why didn't they do this before?Agency fees have been shrinking and they have had to work harder for their money. As a result they had to find more efficient ways to manage client budgets as technologies advanced, buying metrics developed, channels fragmented and performance management evolved.

They turned to ad networks, which took over the day-to-day delivery of display ads. The problem arose a number of years later when agencies realised that they had limited information on where their clients ads were being placed, what worked and what didn't when it came to managing performance campaigns through ad networks (which by 2008 accounted for 40% of the display market).

Agencies were slowly losing their value proposition as inventory became increasingly commoditised and the ad networks were becoming immensely valuable. Yahoo! paid $680m in 2007 for 80% of Right Media and around the same time Google bought Doubleclick (which also had ad exchange functionality) for $3.1 billion. These valuations were a result of the increased reliance from advertisers and agencies on their technology and performance management.

What was the agency solution?Agency groups looked for a way to take back control of this part of the market. Trading desks have been built over the last 18 months and were able to apportion a portion of existing clients' budgets to create instant demand. It has been reported GroupM's Marketplace (now known as Xaxis) managed 4,000 campaigns for 400 GroupM clients in 2010, making a margin on this trading.

Is there a downside for advertisers?Trading desks aren't necessarily bad. If your agency group has invested in building, maintaining and improving resources in order to deliver a solution that is more sophisticated and is able to do this objectively without compromising its ability to hit your business objectives within the budget allocated, while also improving your return on advertising spend, then that's good news.

However, it is also worth taking a step back and considering the following as you enter this new and rather more opaque world of trading:

Is performance from the trading desk being measured to ensure that the campaign improvements promised are delivered?

Ask whether you would put the proposed level of trading desk spend into any other new solution, irrespective of ownership?

Decide if you are happy to pay your agency a fee for trading desk activity, when the group could also be making a margin at the other end. Revisit your contract to ensure your best interests are protected.

Above all, stay up to speed on the latest changes to the digital ecosystem to ensure that you can assess your agency's recommendations knowledgeably.